ASSESSMENT METHODOLOGY :

1. Review of preconditions for effective insurance supervision

The review of preconditions should include an overview of the preconditions for effective insurance supervision which will include:

• sound and sustainable macroeconomic and financial sector policies;

• a well developed public infrastructure;

• effective market discipline in financial markets;

• mechanisms for providing an appropriate level of systemic protection (or public safety net); and

• efficient financial markets.

2. Assessment of ICPs

When carrying out an assessment of observance, it is important to take into account the domestic context, industry structure and developmental stage of the financial system and overall macroeconomic conditions. The factors that should be considered when carrying out an assessment of a jurisdiction or authority’s observance of the ICPs and standards are set out below.

• The IAIS strongly encourages implementation of the framework for effective supervision described by the ICPs. Assessments can facilitate implementation by identifying the extent and nature of any weaknesses in a jurisdiction’s supervisory framework – especially those aspects that could affect policyholder protection and insurance sector stability – as well as recommending possible remedies.

• The framework described by the ICPs is general. Supervisors have flexibility in determining the specific methods for implementation which are tailored to their domestic context (e.g. legal and market structure). The standards set requirements that are fundamental to the implementation of each ICP. They also facilitate assessments that are comprehensive, precise and consistent. While the results of the assessments may not always be made public, it is still important for their credibility that they are conducted in a broadly uniform manner from jurisdiction to jurisdiction

3. Scope

Assessments against the ICPs can be conducted in a number of contexts including:

• self assessments, on either the full set of ICPs or against specific ICPs, performed by insurance supervisors themselves, sometimes with the assistance of other experts. Self assessments may be followed by peer review and analysis.

• reviews conducted by third parties

• reviews conducted in the context of the IMF and World Bank Financial Sector Assessment Program (FSAP).

Normally, but not always, the ICPs should be equally applicable to both life and non-life sectors in order for an overall rating to be assigned. Similarly, it is possible that certain specialised parts of the insurance sector would have observance with the ICPs differing from the other insurance business in the jurisdiction. Where the legal or practical position is materially different between life and non-life insurance or with respect to specialised parts of the insurance business in the jurisdiction such that it would give rise to a different rating had the assessments been carried out separately, it is open to the assessor to consider assigning a level of observance separately for the two parts of the insurance sector for that particular principle. In such cases, the distinction should be clearly identified in the report.

Generally, an assessment should be conducted on a system-wide jurisdictional basis. However, follow-up assessments could focus on identified weaknesses or areas of particular risk. Full FSAP reviews are always done with respect to the jurisdiction as a whole. Wheremore than one authority is involved in the supervisory process, the interaction of supervisory roles should be clearly described in the assessment. If an assessment is conducted in the context of an individual supervisor, a standard may be assessed as not applicable if the responsibility lies with another authority within the jurisdiction. However, the authority responsible for the observance of that standard should be indicated in the report.

4. Conduct of independent assessments – assessment by experts

The process of assessing each ICP requires a judgmental weighing of numerous elements that only qualified assessors with practical and relevant experience can provide. Assessors not familiar with the insurance sector could come to incorrect or misleading conclusions due to their lack of sector specific knowledge. Therefore, independent assessments should only be conducted by those with relevant background and professional experience.

5. Conduct of independent assessments – access to information

When conducting an independent assessment, prior consent from the relevant local authorities is required so that assessors can have access to a range of information and people. The required information may include not only published information such as the legislation and administrative policies but also non-published information, such as self-assessments, operational guidelines for insurance supervisors and the like. The information should be provided as long as it does not violate confidentiality requirements. This information should be provided and analysed in advance to the extent possible, in order to ensure that subsequent onsite visits are efficient and derive the most value. The assessor will need to meet with various individuals and organisations, including the insurance supervisor or supervisors, other domestic supervisory authorities, any relevant government ministries, insurers and insurance industry associations, actuaries, auditors, and other financial sector participants.

6. Reporting

The IAIS does not prescribe the precise format or content of reports that result from an assessment against the ICPs. It does, however, consider that the report should:

• be in writing

• include both the assessment of observance itself and any additional information referred to in this section

• identify the scope and timing of the assessment

• in the case of an external assessment, identify the assessors

• in the case of an external assessment, refer to the information reviewed and meetings conducted, and note when any of the necessary information was not provided and the impact that this may have had on the accuracy of the assessment

• in the case of an external assessment, include prioritised recommendations for achieving improved observance of the ICPs recognising that the assessment should not be considered as an end in itself

• in the case of an external assessment, include the formal comments provided by the supervisors in response to the assessment

• include a review of areas identified in this section as the preconditions to effective supervision.